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One of his reasons is the increasing ability for borrowers to get financing on home purchases. (Read: Al Capone's gangster mansion on the market in Miami Beach).
Why Goldman sees trouble ahead for housing
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Steven Pytlar, Chief Equity Strategist at Prime Executions, says the technicals are saying the problems are more with Lowe’s than with the housing sector. Looking at a long-term chart of the iShares Homebuilder ETF, the ITB, Pytlar sees positive indicators for the homebuilding industry. The ITB is heavily skewed towards the largest home construction companies in the US, unlike other “homebuilder” ETFs which have large holdings in home appliance companies.
(Read: Buying your own home? Read this first)
According to Pytlar, the ITB has recently broken out of a significant resistance level. “When we see that, it's usually a very positive indication that there's a lot of buying interest,” says Pytlar, “that people are accumulating shares, money's coming back into the space. And, so we think overall, that means that there's a lot of optimism in the housing space.”
Looking at a chart of the relative value of the ITB compared to Lowe’s, Pytlar notes that Lowe’s is now underperforming the homebuilder ETF.
“What we really think is happening here is that leadership in the space is changing,” says Pytlar. “It's moving from maybe the home improvement retailers into the actual people who are building the homes which are the components of the ITB. We just think there's a little bit of rotation going on in the housing space, not that the housing space itself is fundamentally slowing down.”
Chad Morganlander, portfolio manager at Washington Crossing Advisors, agrees with Pytlar that homebuilders are a good value. One of his reasons is the increasing ability for borrowers to get financing on home purchases.
(Read: Al Capone's gangster mansion on the market in Miami Beach)
“Consumer credit on the household mortgage side is now expanding,” says Morganlander. That's something that hasn't happened since 2008. That bodes well for the entire housing market.”
Morganlander believes Goldman was justified in saying Lowe’s investors should take their profits now given that he sees homebuilders as more of a relative value.
“The housing market will
continue to steadily increase,” says Morganlander. “You'll start to see a
glacial improvement within housing starts [and] home construction…. So,
for 2014 into 2015 and, dare I say, into '16, we think that housing
will continue to move forward.”
To
see the rest of the discussion on homebuilders with Pytlar on the
technicals and Morganlander on the fundamentals, watch the video above.
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